Prevention Costs Rise as Online Fraud Rises

Peter Prestipino

Posted on 10.30.2016

Online credit card fraud is costing online merchants upward of 7.5 percent of their annual revenue according to a survey released last week from Javelin Strategy and Research, a consulting firm which specializes in the payments industry.

Digital goods merchants, the types of sellers who enable video game and music downloads, saw the worst losses this year according to the research, at 8.6 percent of revenue on average. Hybrid goods merchants — ones that sell both digital and physical items — witnessed similar costs, at 8.1 percent of revenue. The majority of the costs were driven by fraud management expenditures, accounting for around 75 percent of costs.

Javelin found that fraud is particularly expensive for online merchants who must pay the cost of dishonest transactions. Even false reports of fraud cost merchants extra — about 30 percent of all transactions that are declined due to suspected fraud are believed to be legitimate.